Commentary on Biden Administration’s Proposed $3.5 Trillion Budget Reconciliation Plan

Unless you have been preoccupied with any of the hundreds of other responsibilities we have as bankers regarding reporting, compliance, and community investment, you’ve probably heard the rumblings from fellow colleagues about the Biden Administration’s proposed $3.5 trillion budget reconciliation plan and its measure to address the “tax gap.”  If not, let me provide some quick insight into the proposal and key issues we as bankers should be most concerned about.

‍What is the issue?

The Biden Administration has a new focus on “equity across government” through their American Families Plan that includes a proposal to increase tax revenue by $800 billion over a period of 10 years.  One of the measures would require significantly greater reporting by financial service providers via annual reporting of ALL account inflows and outflows (business & consumer) with a minimum account fair market value of $600 or more.  This would include both bank accounts and third-party providers like Venmo, CashApp, and PayPal.   

Reasoning from the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposal:

“The tax gap for business income (outside of large corporations) from the most recently published Internal Revenue Service (IRS) estimates is $166 billion a year. The scale of this revenue loss is driven primarily by the lack of comprehensive information reporting and the resulting difficulty identifying noncompliance outside of an audit. While the net misreporting percentage is only 5 percent for income subject to substantial information reporting, the net misreporting percentage for certain categories of business income exceeds 50 percent. Requiring comprehensive information reporting on the inflows and outflows of financial accounts will increase the visibility of gross receipts and deductible expenses to the IRS. Increased visibility of business income will enhance the effectiveness of IRS enforcement measures and encourage voluntary compliance.”‍

Over 45 state and community banking associations have already expressed strong opposition to this proposal for a multitude of reasons.  This doesn’t include the numerous financial institutions who are also taking a strong stand against the proposal. Personally, I have received numerous emails from community bank CEO’s –including minority depository institutions, who are asking their customers to write to their representation in opposition. It’s also worth noting that The Independent Community Bankers of America’s (ICBA) Minority Bank Advisory Council has had a stance of opposition since July of this year in a joint letter to congress.

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‍So, what are the issues that seem to be creating so much pushback?

According to a June 2021 report by the Independent Community Bankers of America, this “strip mining of consumer financial information” is opposed by financial institutions, small businesses, and consumer groups because:

1. Mining of consumer financial information is intrusive and indiscriminate
2. Mining of consumer financial information undermines the goal of reducing the unbanked
3. The Proposal will increase taxpayer complexity and confusion
4. The IRS could use the data it already has to reduce the tax gap
5. Mining of consumer financial information would enlist financial institutions as agents of the IRS
6. This would put a greater reporting burden on financial institutions

As a former community banker with almost 20-years’ experience in industry, it is my belief that this will put an undue burden on financial institutions, increase risk of data breach attempts, further push the “unbanked” away, and bury the IRS in an ocean of unproductive information. Considering that, I believe we as an industry need to not lose sight of this issue and encourage each of you to engage in conversations with colleagues, peers, state associations, and your representatives in congress.